Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<ul>
<li>Another thing to consider in strategic trades aimed at the buying trend for yearend dividend hunting is the ₩1B majority shareholder transfer tax-triggered selling trend.</li>
<li>But the degree of direct conflict between the buying force targeting dividends and this factor at the point close to the ex-dividend date should not be as large as expected.</li>
<li>Considering a gradual preemptive sale of yearend tax evasion until the ex-dividend, we should consider shortening the trading time frame of the yearend dividend play close to the ex-dividend.</li>
</ul>


Another thing to consider in strategic trades aimed at the buying trend for yearend dividend hunting is the ₩1B majority shareholder transfer tax-triggered selling trend.
But the degree of direct conflict between the buying force targeting dividends and this factor at the point close to the ex-dividend date should not be as large as expected.
Considering a gradual preemptive sale of yearend tax evasion until the ex-dividend, we should consider shortening the trading time frame of the yearend dividend play close to the ex-dividend.


Yearend Dividend-Hunt Buying Vs. Majority Shareholder Transfer Tax-Triggered Selling

Hyundai Marine & Fire Insurance Co., Ltd / Event-Driven

I monitor a total of 31 Korean financial company pairs for pair trading. All of those included as Compe 2 are eligible for short-selling as they are part of KOSPI 200 or KOSDAQ 150. Of these, 8 pairs have a +0.80 180-day correlation coefficient and are currently at -1.0σ on a 20-day moving average.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Comp 1"}'>Comp 1 (long)</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"Comp 2"}'>Comp 2 (short)</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":2,"2":"180-day correlation coefficient"}'>180-day correlation coefficient</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":2,"2":"Sigma on a 20-day moving average"}'>Sigma on a 20-day moving average</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Hyundai Marine &amp; Fire Insurance Co., Ltd"}'>Hyundai Marine &amp; Fire Insurance Co., Ltd</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"DB Insurance Co Ltd"}'>DB Insurance Co Ltd</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.9235179818343655}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.92352</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.776088884171848}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.77609</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Hyundai Marine &amp; Fire Insurance Co., Ltd"}'>Hyundai Marine &amp; Fire Insurance Co., Ltd</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"Samsung Fire &amp; Marine Insurance Co Ltd"}'>Samsung Fire &amp; Marine Insurance Co Ltd</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.8196008707394729}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.81960</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.4840607038916225}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.48406</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}'>Mirae Asset Securities Co Ltd</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"Samsung Securities Co Ltd"}'>Samsung Securities Co Ltd</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.7990679072379809}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.79907</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.3751173809487096}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.37512</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}'>Hana Financial Group Inc</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.9374222791236334}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.93742</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.3726808804439994}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.37268</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"MERITZ SECURITIES CO LTD"}'>MERITZ SECURITIES CO LTD</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"Korea Investment Holdings Co., Ltd."}'>Korea Investment Holdings Co., Ltd.</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.812832800812022}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.81283</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.3098829415216042}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.30988</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Samsung Fire &amp; Marine Insurance Co Ltd"}'>Samsung Fire &amp; Marine Insurance Co Ltd</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"DB Insurance Co Ltd"}'>DB Insurance Co Ltd</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.8981233728989753}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.89812</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.2715664922292673}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.27157</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}'>Mirae Asset Securities Co Ltd</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"NH Investment &amp; Securities Co Ltd"}'>NH Investment &amp; Securities Co Ltd</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.7965427656434082}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.79654</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.1683633479718487}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.16836</td>
</tr>
<tr>
<td style="width: 248.182px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="width: 226.364px;" data-sheets-value='{"1":2,"2":"BNK Financial Group Inc"}'>BNK Financial Group Inc</td>
<td style="text-align: right; width: 87.2727px;" data-sheets-value='{"1":3,"3":0.9620185257943962}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>0.96202</td>
<td style="text-align: right; width: 99.0909px;" data-sheets-value='{"1":3,"3":-1.0500518144354605}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}'>-1.05005</td>
</tr>
<tr><td colspan="4" style="width: 248.182px;">Source: KRX 
</td></tr>
</tbody>
</table>They are all sufficiently liquid as their 30-day average daily trade value is mostly above ₩10B.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Comp 1 (long)"}'>Comp 1 (long)</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":2,"2":"30-day average daily trade value"}'>30-day average daily trade value</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"Comp 2 (short)"}'>Comp 2 (short)</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":2,"2":"30-day average daily trade value"}'>30-day average daily trade value</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Hyundai Marine &amp; Fire Insurance Co., Ltd"}'>Hyundai Marine &amp; Fire Insurance Co., Ltd</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":14.46202689473684}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩14.5B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"DB Insurance Co Ltd"}'>DB Insurance Co Ltd</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":9.622840144736841}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩9.6B</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Hyundai Marine &amp; Fire Insurance Co., Ltd"}'>Hyundai Marine &amp; Fire Insurance Co., Ltd</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":14.46202689473684}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩14.5B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"Samsung Fire &amp; Marine Insurance Co Ltd"}'>Samsung Fire &amp; Marine Insurance Co Ltd</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":26.038764}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩26.0B</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}'>Mirae Asset Securities Co Ltd</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":25.03321042105263}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩25.0B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"Samsung Securities Co Ltd"}'>Samsung Securities Co Ltd</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":26.259585302631578}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩26.3B</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":69.40432211842105}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩69.4B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}'>Hana Financial Group Inc</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":55.43731025263158}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩55.4B</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"MERITZ SECURITIES CO LTD"}'>MERITZ SECURITIES CO LTD</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":9.366756418421053}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩9.4B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"Korea Investment Holdings Co., Ltd."}'>Korea Investment Holdings Co., Ltd.</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":59.58392347368421}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩59.6B</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Samsung Fire &amp; Marine Insurance Co Ltd"}'>Samsung Fire &amp; Marine Insurance Co Ltd</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":26.038764}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩26.0B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"DB Insurance Co Ltd"}'>DB Insurance Co Ltd</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":9.622840144736841}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩9.6B</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}'>Mirae Asset Securities Co Ltd</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":25.03321042105263}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩25.0B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"NH Investment &amp; Securities Co Ltd"}'>NH Investment &amp; Securities Co Ltd</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":17.386767}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩17.4B</td>
</tr>
<tr>
<td style="width: 240.909px;" data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td style="text-align: right; width: 93.6364px;" data-sheets-value='{"1":3,"3":69.40432211842105}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[0], "volumeavg")*average(index(googlefinance(R[-20]C[0], "price", today()-30, today()), 0, 2))/1000000000'>₩69.4B</td>
<td style="text-align: left; width: 228.182px;" data-sheets-value='{"1":2,"2":"BNK Financial Group Inc"}'>BNK Financial Group Inc</td>
<td style="text-align: right; width: 98.1818px;" data-sheets-value='{"1":3,"3":15.425117574736841}' data-sheets-numberformat='{"1":2,"2":"₩#,##0.0B"}' data-sheets-formula='=googlefinance(R[-20]C[3], "volumeavg")*average(index(googlefinance(R[-20]C[3], "price", today()-30, today()), 0, 2))/1000000000'>₩15.4B</td>
</tr>
<tr><td colspan="4" rowspan="1" style="width: 723.636px;" data-sheets-value='{"1":2,"2":"Source: KRX"}'>Source: KRX</td></tr>
</tbody>
</table>These are 180-day beta values with Comp 1 (long) as a numerator and Comp 2 (short) as a denominator in the following beta calculation. Those closer to a 180-day beta value of 1 should have a higher degree of cointegration. Also, I can use this beta value as a hedge ratio for a short position.<div class="content-highlight">Covariance (Comp 1 180-day daily price Δ:Comp 2 180-day daily price Δ) / Variance (Comp 2 180-day daily price Δ)</div>Hyundai Marine &amp; Fire and DB Insurance have the highest cointegration coefficient at 0.79, followed by Mirae Asset and NH Investment at 0.71.<table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"Comp 1 (long)"}'>Comp 1 (long)</td>
<td data-sheets-value='{"1":2,"2":"Comp 2 (short)"}'>Comp 2 (short)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"180-day beta (cointegration coefficient)"}'>180-day beta (cointegration coefficient)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Marine &amp; Fire Insurance Co., Ltd"}'>Hyundai Marine &amp; Fire Insurance Co., Ltd</td>
<td data-sheets-value='{"1":2,"2":"DB Insurance Co Ltd"}'>DB Insurance Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.7882489725798763}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-8]C[-1]">0.78825</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hyundai Marine &amp; Fire Insurance Co., Ltd"}'>Hyundai Marine &amp; Fire Insurance Co., Ltd</td>
<td data-sheets-value='{"1":2,"2":"Samsung Fire &amp; Marine Insurance Co Ltd"}'>Samsung Fire &amp; Marine Insurance Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.691545689879791}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-9]C[1]">0.69155</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}'>Mirae Asset Securities Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"Samsung Securities Co Ltd"}'>Samsung Securities Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6962076152600883}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-10]C[3]">0.69621</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"Hana Financial Group Inc"}'>Hana Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5914597455570075}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-11]C[5]">0.59146</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"MERITZ SECURITIES CO LTD"}'>MERITZ SECURITIES CO LTD</td>
<td data-sheets-value='{"1":2,"2":"Korea Investment Holdings Co., Ltd."}'>Korea Investment Holdings Co., Ltd.</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.36087184468000433}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-12]C[7]">0.36087</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Samsung Fire &amp; Marine Insurance Co Ltd"}'>Samsung Fire &amp; Marine Insurance Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"DB Insurance Co Ltd"}'>DB Insurance Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.5457409326679108}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-13]C[9]">0.54574</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Mirae Asset Securities Co Ltd"}'>Mirae Asset Securities Co Ltd</td>
<td data-sheets-value='{"1":2,"2":"NH Investment &amp; Securities Co Ltd"}'>NH Investment &amp; Securities Co Ltd</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.7113678899298631}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-14]C[11]">0.71137</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial Group Co., Ltd."}'>Shinhan Financial Group Co., Ltd.</td>
<td data-sheets-value='{"1":2,"2":"BNK Financial Group Inc"}'>BNK Financial Group Inc</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":0.6430653047679042}' data-sheets-numberformat='{"1":2,"2":"#,##0.00000","3":1}' data-sheets-formula="=Beta!R[-15]C[13]">0.64307</td>
</tr>
<tr><td colspan="3">Source: KRX</td></tr>
</tbody>
</table>

I monitor a total of 31 Korean financial company pairs for pair trading. All of those included as Compe 2 are eligible for short-selling as they are part of KOSPI 200 or KOSDAQ 150. Of these, 8 pairs have a +0.80 180-day correlation coefficient and are currently at -1.0σ on a 20-day moving average.








Comp 1 (long)
Comp 2 (short)
180-day correlation coefficient
Sigma on a 20-day moving average


Hyundai Marine &amp; Fire Insurance Co., Ltd
DB Insurance Co Ltd
0.92352
-1.77609


Hyundai Marine &amp; Fire Insurance Co., Ltd
Samsung Fire &amp; Marine Insurance Co Ltd
0.81960
-1.48406


Mirae Asset Securities Co Ltd
Samsung Securities Co Ltd
0.79907
-1.37512


Shinhan Financial Group Co., Ltd.
Hana Financial Group Inc
0.93742
-1.37268


MERITZ SECURITIES CO LTD
Korea Investment Holdings Co., Ltd.
0.81283
-1.30988


Samsung Fire &amp; Marine Insurance Co Ltd
DB Insurance Co Ltd
0.89812
-1.27157


Mirae Asset Securities Co Ltd
NH Investment &amp; Securities Co Ltd
0.79654
-1.16836


Shinhan Financial Group Co., Ltd.
BNK Financial Group Inc
0.96202
-1.05005

Source: KRX 


They are all sufficiently liquid as their 30-day average daily trade value is mostly above ₩10B.








Comp 1 (long)
30-day average daily trade value
Comp 2 (short)
30-day average daily trade value


Hyundai Marine &amp; Fire Insurance Co., Ltd
₩14.5B
DB Insurance Co Ltd
₩9.6B


Hyundai Marine &amp; Fire Insurance Co., Ltd
₩14.5B
Samsung Fire &amp; Marine Insurance Co Ltd
₩26.0B


Mirae Asset Securities Co Ltd
₩25.0B
Samsung Securities Co Ltd
₩26.3B


Shinhan Financial Group Co., Ltd.
₩69.4B
Hana Financial Group Inc
₩55.4B


MERITZ SECURITIES CO LTD
₩9.4B
Korea Investment Holdings Co., Ltd.
₩59.6B


Samsung Fire &amp; Marine Insurance Co Ltd
₩26.0B
DB Insurance Co Ltd
₩9.6B


Mirae Asset Securities Co Ltd
₩25.0B
NH Investment &amp; Securities Co Ltd
₩17.4B


Shinhan Financial Group Co., Ltd.
₩69.4B
BNK Financial Group Inc
₩15.4B

Source: KRX

These are 180-day beta values with Comp 1 (long) as a numerator and Comp 2 (short) as a denominator in the following beta calculation. Those closer to a 180-day beta value of 1 should have a higher degree of cointegration. Also, I can use this beta value as a hedge ratio for a short position.Covariance (Comp 1 180-day daily price Δ:Comp 2 180-day daily price Δ) / Variance (Comp 2 180-day daily price Δ)Hyundai Marine &amp; Fire and DB Insurance have the highest cointegration coefficient at 0.79, followed by Mirae Asset and NH Investment at 0.71.







Comp 1 (long)
Comp 2 (short)
180-day beta (cointegration coefficient)


Hyundai Marine &amp; Fire Insurance Co., Ltd
DB Insurance Co Ltd
0.78825


Hyundai Marine &amp; Fire Insurance Co., Ltd
Samsung Fire &amp; Marine Insurance Co Ltd
0.69155


Mirae Asset Securities Co Ltd
Samsung Securities Co Ltd
0.69621


Shinhan Financial Group Co., Ltd.
Hana Financial Group Inc
0.59146


MERITZ SECURITIES CO LTD
Korea Investment Holdings Co., Ltd.
0.36087


Samsung Fire &amp; Marine Insurance Co Ltd
DB Insurance Co Ltd
0.54574


Mirae Asset Securities Co Ltd
NH Investment &amp; Securities Co Ltd
0.71137


Shinhan Financial Group Co., Ltd.
BNK Financial Group Inc
0.64307

Source: KRX



Korean Financials Pair Trading: 4 Pairs Deserve Attention at This Point

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

* Weak First Quarter To Start Off Year: KB Financial Group (105560.KS/KB.US) [KB] reported 1Q20 results of KRW 729.5 bn, up KRW 194.8 bn or 36.4% linked quarter. Despite the large linked quarter variance, KB actually missed consensus of KRW 801 bn;* Credit Taking A Turn For Worse Already: Credit quality is a lagging indicator, and the truth is that by the time that the quarter ended we were only 18 days into the COVID-19 Crisis. 2Q20  - at 108 days into the Crisis will tell a far different story. That being said, already NPLs have increased KRW 14.0 tn or 4.2% on a linked quarter basis – which is relatively high on a regional basis. Where we become increasing concerned is the level of net new problem loans which increased 202.6% on an annualized basis in 1Q20; and*Pru Transaction Is A Dumb Deal: KB has begun preparing to become retake Seoul’s title of being the leading financial group from Shinhan Financial Group (055550.KS), as it embarks on a transaction for Prudential Korea (PRU.LN). At this early stage of the cycle and Pru Korea’s long-tail and likely challenged assets, along with union and Pru financial planner pushback, this transaction seems like the cart is being put before the hose – and it should be strongly reconsidered.

* Weak First Quarter To Start Off Year: KB Financial Group (105560.KS/KB.US) [KB] reported 1Q20 results of KRW 729.5 bn, up KRW 194.8 bn or 36.4% linked quarter. Despite the large linked quarter variance, KB actually missed consensus of KRW 801 bn;* Credit Taking A Turn For Worse Already: Credit quality is a lagging indicator, and the truth is that by the time that the quarter ended we were only 18 days into the COVID-19 Crisis. 2Q20  - at 108 days into the Crisis will tell a far different story. That being said, already NPLs have increased KRW 14.0 tn or 4.2% on a linked quarter basis – which is relatively high on a regional basis. Where we become increasing concerned is the level of net new problem loans which increased 202.6% on an annualized basis in 1Q20; and*Pru Transaction Is A Dumb Deal: KB has begun preparing to become retake Seoul’s title of being the leading financial group from Shinhan Financial Group (055550.KS), as it embarks on a transaction for Prudential Korea (PRU.LN). At this early stage of the cycle and Pru Korea’s long-tail and likely challenged assets, along with union and Pru financial planner pushback, this transaction seems like the cart is being put before the hose – and it should be strongly reconsidered.  

KB Financial – Bigger Is Not Always Better

Bank For Investment And Deve / Equity Bottom-Up

<ul>
<li>
One For the Ages: The Bank for Investment and Development of Vietnam (BID.VN) [BIDV] held a somewhat delusional 2020 Annual General Meeting (AGM). In February 2020, BIDV became the 12th bank to clear its balance due to the VAMC, just as credit quality is likely to take a massive turn for the worse. No doubt it will be hitting up the VAMC for more bonds near-term. To that end, BIDV has already committed to expand its loan bailout to VND 120 tn. BIDV was unfortunately among the Basel II non-compliant despite the sale of a 15% stake to KEB Hana Bank (086790.KS). 2020 forecasts are in the stratosphere and need to come back to earth.</li>
<li>
Reality Check Needed For Vietnam: Fitch Ratings (Fitch) recently lowered Vietnam’s GDP growth to 6.3% from 6.8% in 2020. Given the symbiotic economic relationship between mainland China and Vietnam, we find the Fitch’s GDP growth forecast to be incredibly generous as crisis conditions typically suggest negative GDP growth. The IV Board survey revealed that nearly 30% surveyed had lost between 20-50% of revenues associated with the corona virus, while 60% had lost revenues by over half.  It also suggested that six months of this economic weakness could lead to 74% of surveyed companies to become bankrupt.</li>
<li>
Liquidity Wall: Vietnam is running into a liquidity wall. The sovereign has a high level of public debt (near its 65% debt/GDP cap) – and now growing - which constrains spending while the banking system (as it converts over to the more stringent Basel II capital regime) remains saddled with troubled debt which too has reversed its downward trend - resulting in systemic balance sheet and liquidity constraints.</li>
</ul>



One For the Ages: The Bank for Investment and Development of Vietnam (BID.VN) [BIDV] held a somewhat delusional 2020 Annual General Meeting (AGM). In February 2020, BIDV became the 12th bank to clear its balance due to the VAMC, just as credit quality is likely to take a massive turn for the worse. No doubt it will be hitting up the VAMC for more bonds near-term. To that end, BIDV has already committed to expand its loan bailout to VND 120 tn. BIDV was unfortunately among the Basel II non-compliant despite the sale of a 15% stake to KEB Hana Bank (086790.KS). 2020 forecasts are in the stratosphere and need to come back to earth.

Reality Check Needed For Vietnam: Fitch Ratings (Fitch) recently lowered Vietnam’s GDP growth to 6.3% from 6.8% in 2020. Given the symbiotic economic relationship between mainland China and Vietnam, we find the Fitch’s GDP growth forecast to be incredibly generous as crisis conditions typically suggest negative GDP growth. The IV Board survey revealed that nearly 30% surveyed had lost between 20-50% of revenues associated with the corona virus, while 60% had lost revenues by over half.  It also suggested that six months of this economic weakness could lead to 74% of surveyed companies to become bankrupt.

Liquidity Wall: Vietnam is running into a liquidity wall. The sovereign has a high level of public debt (near its 65% debt/GDP cap) – and now growing - which constrains spending while the banking system (as it converts over to the more stringent Basel II capital regime) remains saddled with troubled debt which too has reversed its downward trend - resulting in systemic balance sheet and liquidity constraints.


BIDV – KEB Hana Has To Be Kicking Itself Now

Corporate Credit Analyst

Alan Greene

Thematic (Sector/Industry)

Recently announced industrial output figures for June suggest that Korea may be able to trade its way towards higher growth rates. However, at the same time, on 30 June, the Korea Times carried a headline “Bedroom shock: Korea's sexless rate ranked world's second”. The sovereign rating of its neighbour Japan has seen steady pressure for the last five years driven in part by its demographic profile. Korea's demographic profile is likely to deteriorate more rapidly than Japan's and we should therefore expect a similar debt induced stall in growth. The banking system is under pressure and this could soon translate into pressure on Korea's credit ratings.

Recently announced industrial output figures for June suggest that Korea may be able to trade its way towards higher growth rates. However, at the same time, on 30 June, the Korea Times carried a headline “Bedroom shock: Korea's sexless rate ranked world's second”. The sovereign rating of its neighbour Japan has seen steady pressure for the last five years driven in part by its demographic profile. Korea's demographic profile is likely to deteriorate more rapidly than Japan's and we should therefore expect a similar debt induced stall in growth. The banking system is under pressure and this could soon translate into pressure on Korea's credit ratings.

Can "sexless" Korea Beat the Demographic Cliff and Maintain Its Credit Rating?

South Korea

Mirae Asset Securities Co., Ltd. provides brokerage, investment trust, and underwriting services.  The Company also provides services in the areas of cyber trading, mutual funds, asset backed securities (ABS) issuing, and municipal bonds trading.

Mirae Asset Securities Co, Ltd. (037620 KS)

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Mirae Asset Securities Co, Ltd. (037620 KS)

Yearend Dividend-Hunt Buying Vs. Majority Shareholder Transfer Tax-Triggered Selling

This post looks at the yearend dividend-hunt buying versus the ₩1B majority shareholder transfer tax-triggered selling trend.

Sanghyun Park

Korean Financials Pair Trading: 4 Pairs Deserve Attention at This Point

This post monitors Korean financials for pair trading (31 in total) and screens out 4 pairs deserving special attention at this point.

Sanghyun Park

KB Financial – Bigger Is Not Always Better

* Weak First Quarter To Start Off Year: KB Financial Group (105560.KS/KB.US) [KB] reported 1Q20 results of KRW 729.5 bn, up KRW 194.8 bn or 36.4%...

Thomas J. Monaco

BIDV – KEB Hana Has To Be Kicking Itself Now

One For the Ages: The Bank for Investment and Development of Vietnam (BID.VN) [BIDV] held a somewhat delusional 2020 Annual General Meeting...

Thomas J. Monaco

Can "sexless" Korea Beat the Demographic Cliff and Maintain Its Credit Rating?

Recently announced industrial output figures for June suggest that Korea may be able to trade its way towards higher growth rates. However, at the...

Alan Greene

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